Third party funding at present is one of the most controversial topics in ICA. The funders under this type of funding fund the arbitration proceedings either partially or fully. The funders fund usually with a motivation to gain profit and they are remunerated from the award given. This percentage of remuneration is based on the agreement previously done between parties and the funder. These days the number of cases related to funding activity is increasing and various ethical and procedural issues are also taking place.

At many places, third party funding is also called “litigation funding”. It is funding by a party that will cover the litigation and other costs of the party in return of a decided share in the award of the successful litigation process. Many times it also covers costs for traditional courts as well as mediation and conciliation procedures. One of the most important reasons is the leveraging of the costs. It gives a secure position to the parties. (Amita Katragadda, 2019)

Third party funding is the funding done by the third party and by the funder who is not actually involved in arbitration proceedings. This type of funding can basically involve two types of funding, one of which is the fees of the lawyers, and the other can be the security for the losses involved in the arbitration proceedings. The third-party involved may want to be involved in the suit and share the profits that happen to arise in the process of arbitration.

The third-party involved analyses the entire situation of the parties and generally invests with a profit motive and invest in parties where there is no scope of loss. There are many countries these days which are making third party funding legal, two of which are Australia and England. The other countries which very recently included the rules are Singapore and Hong Kong.

The Arbitration Act of 1996 in India doesn’t have any mention of the third party funding still a few states such as Maharashtra and Gujarat are legally using it. Other possibilities in regard to TPF might include the possibility of becoming a valid contract.

It is important to note that the word party is included under the provisions of the Arbitration Act but it works with limited scope. When it comes to considering the court on TPF, then in 2015 it was already said by the court in the case of “Bar Council of India v. AK Balaji” that, “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.” Although at present there exists no law in the name of third party funding in India.

Some of the other disadvantages attached to TPF are disclosure and the substantial costs that are incurred by the funded party when packaging the case for presentation to a funder. (ashrst, 2020) Recent developments in the area of the third party, funding includes the latest guidelines published is “China International Economic and Trade Arbitration Commission, the Hong Kong Arbitration Center (CIETAC)”in 2017.

Who Can Be Funded?

Claimants are the receiver of TPF as there is a scope to have monetary awards on the successful result. This monetary award shall be shared with the funder. There are also new trends emerging for the protection of both claimants and defends such as insurance facilities etc. due to the risks involved in TPF.

Who Are The Funders?

Funders are people or organizations who are specialized in TPF, Insurance companies and investment banks. Funding includes costs of the litigation proceedings, fees of the lawyers, arbitration fees. The funders will also take care of the security costs and any loss that will take place in adverse situations. Here the courts has the authority to act against the funders and the funders shall not act as a party.

Regulations For TPF

“It is well known that domestic rules and regulations are likely to be inconsistent among other jurisdictions.” Because of this issue, the parties go for selecting the law of the states which will govern the matter or are even silent on the same. Parties at the same time are also afraid of over-regulation which will restrict the use and application of third-party funding. There is no one solution and law for cases which will fit all sort of circumstances and so the parties are flexible in choosing which law to apply. In these circumstances, the rules of the institution are effective as they have broader applicability as compared to domestic laws.

International Guidelines have proved to be more effective as they are flexible and non-binding in nature.

At present, the continuous debates have given rise to more awareness about the risks that are associated with third party funding.